The Korean government told a US Trade Representative (USTR) hearing that voluntary industry restructuring is underway, as Washington used the overcapacity issue to justify tariff measures. Facing intensifying US trade pressure, Seoul now shoulders a dual task: upholding the principle of "market autonomy" while demonstrating tangible restructuring results.
At the Section 301 trade law investigation hearing held by the USTR at the US International Trade Commission (ITC) office in Washington, DC on Wednesday, the Korean government delegation said, "Korea's industrial structure is based on market economy principles." The delegation also explained that the government is providing institutional support to back industry restructuring. Specifically, it emphasized that Korea is guiding voluntary restructuring in the petrochemical sector through measures such as the Corporate Rehabilitation Act implemented in 2016 and the Enforcement Decree of the Special Act on Strengthening Competitiveness and Supporting the Petrochemical Industry, approved by the Cabinet in April.
Regarding Korea's trade surplus with the US, the delegation highlighted the complementary relationship between the two countries' industries, while actively emphasizing that bilateral cooperation in manufacturing and other sectors will further expand based on the Korea-US Strategic Investment Memorandum of Understanding (MOU) signed last year, according to sources.
The hearing is part of the Section 301 investigation launched by the US to prepare alternative tariff measures following the Supreme Court's ruling that reciprocal tariffs were illegal. The US is expected to decide on response measures, including tariff imposition, when the investigation concludes.
US Presses on Petrochemical Overcapacity, Voluntary Restructuring Pace Sluggish
Although the Korean government highlighted voluntary restructuring, critics point out that progress on the ground remains slow. In fact, the US Section 301 investigation itself stems from suspicions that low-cost Chinese petrochemical products are being re-exported through Korea, placing Seoul in a difficult position of arguing "we are also victims" while simultaneously proving the structural improvement of its own industry. In August last year, the government and industry signed a voluntary agreement to reduce naphtha cracking center (NCC) production by up to 3.7 million tons and shift to high value-added products. In December last year, business restructuring plans for the three major industrial complexes — Yeosu, Daesan, and Ulsan — were finalized. LG Chem is reportedly considering establishing a joint venture (JV) with GS Caltex at the Yeosu complex and shutting down its aging No. 1 plant (annual capacity of 1.2 million tons).
At the Daesan complex, Lotte Chemical and HD Hyundai Chemical plan to establish a joint venture in the second half of this year, but the Ulsan and Yeosu complexes remain at an early stage of reviewing the feasibility of facility integration and production restructuring.
According to Bank of Korea analysis, this restructuring is estimated to reduce industrial output by up to 6.7 trillion won ($4.9 billion) in 2026 and cut employment by up to 5,200 jobs. Experts point out that voluntary restructuring alone may not be sufficient to persuade the US administration, given unresolved structural pressures from oversupply in China and the Middle East and the expansion of US shale gas. Labor-management conflicts and coordination among major conglomerates are slowing the pace of restructuring, and observers expect this issue to become a key point of contention in negotiations with the US.
US Pushes Digital Duty-Free Amid Tariff Gridlock, Korea Also Affected
Meanwhile, the US plans to independently pursue so-called "digital duty-free" measures in partnership with Korea, Japan and others, Reuters reported. As World Trade Organization (WTO) negotiations have stalled, with developed countries pushing to lower tariff barriers on electronically transmitted content such as over-the-top (OTT) services, while middle-income countries including Brazil and Türkiye have resisted over concerns about reduced tax revenue, the US has prepared an independent alternative. It has not yet been confirmed how many WTO member states will join the US proposal. For Korea, the measures are relevant as webtoons, games and other digital content are among its key exports.
